Westgold Resources (ASX: WGX) has taken a step forward in its planned merger with Canadian-listed dance partner Karora Resources (TSX: KRR) after the latter’s board unanimously recommended that its shareholders back the transaction.
The gold-hunting companies are aiming to produce 400,000 ounces annually and the merger could propel the combined entity into becoming one of Australia’s top five gold producers. Two-thirds of Karora shareholders will be required to vote in favour of the merger at a meeting in Toronto on July 19 for the plan to go ahead.
Westgold says the Karora board has determined the arrangement is in the best interests of that company and provides its shareholders with a fair result. The merger will also require the consent of the Ontario Superior Court, in addition to various other regulatory approvals including a go-ahead from the Foreign Investment Review Board (FIRB).
A positive voting outcome would then consist of a final court hearing on July 24, with the completion of the transaction expected on July 31.
If approved, the merged company would have a market cap of about AU$2.4 billion. It would operate exclusively in Western Australia across two goldfields that include four production centres and financial resources of close to $160 million.
Westgold says the company would be an unhedged mid-tier producer with a compelling list of growth and exploration targets on more than 3200 square kilometres of prospective ground. The merger will bring renowned gold projects Big Bell, Beta Hunt, the emerging Bluebird and the Great Fingall mine all under the one ownership umbrella.
Great Fingall recently made news with an astonishing hit of 3.03m going 547 grams per tonne gold from 204.87m.
Westgold would have five mills with a processing capacity of 6.9 million tonnes per annum along with plans to increase its owner-miner capability, leveraging its mining and drilling fleet with Karora’s newly-purchased equipment.
The new company will operate under Westgold’s banner and potentially produce the “eye-popping” 400,000 ounces of gold per year from a combined 13 million-ounce resource and more than 3 million-ounce reserve.
The plan is to dual-list on the Australian and Canadian stock exchanges, with a view to triggering a significant re-rating by the market of the merged companies and provide a higher profile for Westgold. The Canadian TSX, based in Toronto, is the world’s 10th-biggest by market capitalisation.
Upon completion of the transaction, Westgold shareholders will own 50.1 per cent of the combined company and former Karora shareholders will own the remaining 49.9 per cent.
Karora shareholders will receive 2.524 fully-paid Westgold shares plus 68c in cash for each Karora share. In addition, they will receive 0.3 of a share in a new company to be de-merged from Karora, known as “SpinCo”, for each Karora share they own.
SpinCo’s assets comprise a 22.1 per cent interest in ASX-listed Kali Metals, a 1 per cent lithium royalty on certain Kali mining interests, rights to a potential deferred consideration payment for the sale of an asset and $6 million in cash.
Westgold also recently ramped-up the volume at its Bluebird-South Junction gold project in WA’s Murchison region, updating its resource to 827,000 ounces – an increase of 134 per cent, or 474,000 ounces. Management confirmed the updated resource now totals 6.4 million tonnes at 3.1g/t gold for the 827,000 ounces.
The upgrade came after the company’s drill program returned several stellar intersections of 20.4m at 5.12g/t gold from 278.9m, 28.9m going 3.59g/t from 244.64m and 10.45m at 3.8g/t from 788m including 3.98m at 10.8g/t from 894.49m.
Westgold says it identified the South Junction zone as having “tremendous” growth potential following an initial drill-testing program early last year and believes the deposit could become a primary driver to further boost its gold stocks in the near term.
It believes there has been a lack of sufficient historic drilling between its Bluebird mine, with total produced gold of 784,000 ounces, and its South Junction zone that has delivered nearly 400,000 ounces via past open-pit operations.
But for the time being, Westgold will be keeping its fingers crossed that Karora shareholders follow its board’s recommendation and vote a resounding “YES” to the merger proposal.
Is your ASX-listed company doing something interesting? Contact: office@bullsnbears.com.au